It's an unfortunate reality, your mortgage borrower passes away and leaves someone behind who wants to live in/own the house. Can they afford the mortgage payment? Is there a chance this is just a scam? How do we protect the borrower's private information but also take care of this poor person who just lost a loved (presumably) one?
Get ready to be pulled in a dozen different directions. On one hand, we need to protect the deceased borrower's private information. But federal regulators (and human decency) want us to make it as easy as possible for successors-in-interest to handle the borrower's affairs. Another key concern is to promote home retention; to do everything possible to allowed loved ones to keep the home of a borrower who has passed away.
Train to avoid these mistakes!
- Giving away private information without verifying that the primary borrower is actually deceased.
- Making it too difficult for a successor to access the necessary information
- Not doing enough to help the successor stay in the home (have you considered a modification?)
The CFPB's new servicing updates have just taken effect, and they include some changes in how we handle successors-in-interest.
There are three things to know about how successors-in-interest are affected by this new set of rules:
- New definitions of "successor-in-interest"
- Clarify how servicers are supposed to verify the successor-in-interest's identity and ownership interest
- Pre-existing rights and requirements as to borrowers now applied to successors-in-interest (basically a successor now has the same rights as a borrower)
#2 - How to verify successor-in-interest's identity and ownership interest
Well since we can't go through every possible issue, let's pick one. Let's talk about how to verify that this person claiming to be our borrower's heir (or whatever) actually has a right to this information.
So the general behind this Rule is this: While we need to guard against fraud and protect private information, Federal regulators are concerned that our industry is making it too difficult for successors-in-interest to obtain information about the loan.
So here is a list of requirements related to this verification of the successor-in-interest's identify and ownership interest:
1. Upon receiving a notice of death, we need to promptly facilitate communication with any successors
We do not need to become Private Eyes and search for successors, but we do need to proactively communicate with them once who we know they exist.
"Promptly"? There's no specific definition. They say it will depend on the individual circumstance. Guidance does give an example to explain in a normal instance it should take "significantly less" than 30 days.
2. If in response to a written request, we are required to promptly provide a written response listing all documents that we will require to confirm the successor-in-interest's status
According to the CFPB explanation, they wrote this rule because of all the complaints they received from consumers who just never heard from the servicer. So they wrote into the servicer claiming to be a successor-in-interest, but then the servicer never responded!
3. We can only require those documents that are reasonable in light of the laws of the relevant jurisdiction.
Apparently, there are a large number of servicers who require a large amount of information that is completely irrelevant to confirmation of the successor's status. Well because of them, we have this rule!
What exactly are those? They'll vary state-to-state. The Rule examples say they might include a death certificate, executed will, or a court order. (Remember not to require all if one will do.) In the case of the death of a spouse, we might require a death certificate and the recorded deed (which shows they both own the property). Note: We couldn't require the deed if we already have it in our possession; that wouldn't be "reasonable."
4. Upon receiving this documentation, we must "promptly" make a decision and "promptly" communicate with the successor
There's that word again.
5. We must have written policies and procedures on these Rules (this does not apply to "small servicers")
Remember small servicers have a servicing portfolio of 5,000 mortgage loans or less.
Here are some extra materials on this topic that you might find helpful: Fannie Mae Directive
on deceased borrowers, CFPB Bulletin
on Successors in Interest, the CFPB's new servicing rule updates
(search the word "successor" because there are 900 pages), and the CFPB Summary
on all the 2016 servicing changes.